I think this gen of consoles is just reaching its stride with regard to games, whether it be 360 or PS3. We are seeing some awesome games on both platforms. What is interesting is the quality of on-line gaming. MW2, BC2 (both cross platform) and MAG on the PS3. I think this is where the 360 is showing its limitations - it physically doesnt have the pure processing power to deal with truly massive online games (and I think both would suffer with something like EQ2 / WoW due to the shear volume of multi source rendering, compared to a modern PC).
I think the next gen of gaming, not just consoles will require greater processing power and a higher demand for bandwidth. Imagine BFBC4 with full scale wars, 250 players per side, with replication of true battlefield tac systems, where the tanks targeting computers talk to one another, or multiple apaches can track multiple targets in real time. Imagine having to call in a C130 spectre and having to fly and crew it. Think of games lasting hours, not minutes. Think of clan based gaming, where playing with friends gets squad unlocks or upgrades, not just individual unlocks. Imagine your clan starting off as combat grunts and working towards becoming Navy Seals, or a squadron of Apache Pilots, or whatever you want to be. This is the future of gaming. Dont get too hung up on graphics alone, think scale.
Imagine full mocap for race tracks, not just the current renders. Where data for the games is captured using sensors in cars to provide true real world physics. Add to this environmental real time data, so if it is raining at Nurburgring now, that is what you get on your console. Imagine being able to compete in a grand prix, the day after it really ran, to see how you would fair!
This is next gen gaming, not some grappy little GPU upgrade. Both Sony and Microsoft are looking way beyond what we are seeing now, They understand how advances in infrastructure (broadband / cloud computing) and developments in cinematic CGI / motion capture will allow the next gen of consoles to far outperform what we are seeing now. Hence they are working with both software houses and hardware vendors to develop consoles fro the next gen.
Also worth remembering that both Sony and Microsoft see these and the next gen devices as Media Hubs not just gaming consoles. So expect more 1080p streaming content also, maybe with HD webcams that connect to all of the users in your party. Expect augmented reality, where a webcam does realtime mocap and avatar rendering (like Avatar) for say MMOs. You may not like the idea of Natal or Sony's version, but we are seeing first gen of this kind of technology.
Then we have 3D TV, its here now. Sky have just bought 15,000 3D TV sets to put in pubs for the new sky 3D service. Who saw 3D coming when the PS3 and 360 were launched ? no one I bet, not even Sony and Microsoft. But there will be the expectation that the new consoles, PS4, 720 or whetever will ned to be able to support it.
1080p is old hat in japan, they have super HD which supports 4x the pixel density of HD. Does the new console have to support it ?
I know Major Nelson had the tech guys at Microsoft replace his HD on his 360 with a SSD drive. Has HD storage for your console had its day ? How does cloud computing fit into the console model ?
Add hand-helds onto this. MS have Zunes, Sony have PSPs, Nintendo have DS. We havent seen true integration of these into console gaming. Imagine playing an MMO (persistent world) where you can update your avatar or spacecraft (a la Eve online) or do crafting or train your squad via your hand held on a wifi connection, even when you are not fully logged on in game.
Console gaming has come a long way since Colecovision, Atari 2600, Binatone, NeoGeo. The modern console is still 1000x more powerful than the first Space Shuttle's on board computers, which had less than 1meg of ram. And over 1,000,000 more powerful than the total computing power of NASA when they put a man on the moon!
So maybe these consoles are reaching their limits with regard large scale multiplayer gaming, but they have years of development left with regards to ENJOYMENT. So rather then get into a pi$$ing competition on whose console platform is best, lets enjoy playing the current offering of bl00dy brilliant games. Personally I have never enjoyed gaming more than I have today. Making friends with total strangers, who have a similar desire to play the same games that I do and having a good laugh in the process is what makes it work for me, irrespective of the platform.
Mushii